Exhibit 10.5
This EMPLOYMENT AGREEMENT (this
“Agreement”) is made as of August 1, 2006 (the
“Effective Date”), by and between SCIENTIFIC GAMES
INTERNATIONAL, INC., a Delaware corporation (the
“Company”), which is a subsidiary of SCIENTIFIC GAMES
CORPORATION, a Delaware corporation (“SGC”), and
William J. Huntley (“Executive”).
W I T N E S S E T H
WHEREAS, Executive has been employed
pursuant an Employment and Severance Benefits Agreement with the
Company September 6, 2000 as modified by letter agreement of
December 18, 2002 (the “Original Agreement”);
and
WHEREAS, the Company and Executive
desire that this Agreement replace and supersede the Original
Agreement;
NOW, THEREFORE, in consideration of
the premises and the mutual benefits to be derived herefrom and
other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties agree as
follows:
1.
Termination of Existing
Employment Agreements. As of the Effective Date, all existing
employment agreements between the parties, whether oral or written,
including the Original Agreement, are hereby terminated and
superseded.
2.
Employment Term
. The Company hereby agrees to
employ Executive, and Executive hereby accepts employment with the
Company, in accordance with and subject to the terms and conditions
set forth herein. The term of employment of Executive under this
Agreement (the “Term”) shall be the period commencing
on the Effective Date and ending on February 1, 2009, as may be
extended in accordance with this Section and subject to earlier
termination in accordance with Section 5. The Term shall be
extended automatically without further action by either party by
one additional year (added to the end of the Term), and then on
each succeeding annual anniversary thereafter, unless either party
shall have given written notice to the other party at least ninety
(90) days prior to the date upon which such extension would
otherwise have become effective electing not to further extend the
Term, in which case Executive’s employment shall terminate on
the date upon which such extension would otherwise have become
effective, unless earlier terminated in accordance with
Section 5. It is also intended that your previous term of
employment with the Company shall be included when calculating your
tenure at the Company for all purposes.
3.
Offices and Duties.
During the Term, the Executive will
serve as President of Scientific Games Racing, Sports and Gaming
Technology, a division of the Company, as Vice President of SGC,
and as an officer or director of any subsidiary or affiliate of the
Company if elected to any such position by the shareholders or by
the Board of Directors of the Company or any subsidiary or
affiliate, as the case may be. In such capacities, the Executive
shall perform such duties and shall have such responsibilities as
are normally associated with such positions and as otherwise may be
assigned to the Executive from time to time by the Chief Executive
Officer or President of the Company or upon the authority of the
Board of Directors of the Company. Subject to Section 5(e),
Executive’s functions, duties and responsibilities are
subject
to reasonable changes as the Company
or SGC may in good faith determine. The Executive hereby agrees to
accept such employment and to serve the Company to the best of his
ability in such capacities, devoting substantially all of his
business time to such employment.
4.
Compensation;
Benefits
(a)
Base Salary.
During the Term the Company
shall pay Executive a base salary (the “Base Salary”)
at the initial rate of five hundred and fifteen thousand dollars
($515,000) per annum, payable biweekly (except to the extent
deferred under a deferred compensation plan) and subject to all
withholdings that are legally required or are agreed to by
Executive. In the event that the Company, in its sole discretion,
from time to time determines to increase the Base Salary, such
increased amount shall, from and after the effective date of the
increase, constitute the “Base Salary” for purposes of
this Agreement.
(b)
Incentive
Compensation . Executive shall have the opportunity
annually to earn incentive compensation in amounts determined by
the Compensation Committee of the Board of Directors of SGC (the
“Compensation Committee”) in accordance with the
applicable incentive compensation plan of the Company as in effect
from time to time (“Incentive Compensation”). Under
such plan, Executive shall have the opportunity to earn up to 66.7%
of Base Salary as Incentive Compensation at Target Opportunity
(“Target Bonus”) and up to 133% of Base Salary as
Incentive Compensation at Maximum Opportunity.
(c)
Eligibility for Annual Equity
Awards .
Executive shall be eligible to receive an annual grant of stock
options or other equity awards, in the sole discretion of the
Compensation Committee, in accordance with the applicable plans and
programs for senior executives of the Company and subject to the
Company’s right to at any time amend or terminate any such
plan or program, so long as any such change does not adversely
affect any accrued or vested interest under any such plan or
program.
(d)
Expense
Reimbursement . The Company shall reimburse Executive for
all reasonable and necessary travel, business entertainment and
other business expenses incurred by Executive in connection with
the performance of Executive’s duties under this Agreement,
on a timely basis upon submission by Executive of vouchers
therefore in accordance with the Company’s standard
procedures.
(e)
Health and Welfare
Benefits. Executive shall be entitled to
participate, without discrimination or duplication, in any and all
medical insurance, group health, disability, life, accidental
death, dismemberment insurance, 401(k) or other retirement,
deferred compensation, profit sharing, stock ownership and such
other plans and programs which are made generally available by the
Company to its other senior executives in accordance with the terms
of such plans and programs and subject to the Company’s right
to at any time amend or terminate any such plan or program.
Executive shall be entitled to paid vacation, holidays, and any
other time off in accordance with the Company’s policies in
effect from time to time.
(f)
Residual SERP
Benefit.
Executive’s aggregate retirement benefit under the
Company’s Supplemental Executive Retirement Plan, as amended,
restated and finally
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terminated as of December 31, 2005
(“SERP”) had a value equal to $3,788,461.00
(representing the lump sum present value of his SERP benefit as of
December 31, 2005) which will accrue interest at a rate of four
percent (4%) per annum, compounded annually, for the period from
December 31, 2005 through the date of distribution. Subject to the
terms of the SERP and this Agreement, Executive shall receive his
SERP benefit in a lump sum payment in accordance with Section 409A
after termination of employment.
(g)
Taxes and Internal Revenue
Code 409A . The
Company makes no representations regarding the tax implications of
the compensation and benefits to be paid to Executive under this
Agreement, including, without limitation, under Section 409A of the
Internal Revenue Code of 1986, as amended (the “Code”),
and applicable administrative guidance and regulations.
Internal Revenue Code Section 409A governs plans and arrangements
that provide “nonqualified deferred compensation” (as
defined under the Code) which may include, among others,
nonqualified retirement plans, bonus plans, stock option plans,
employment agreements and severance agreements. The Company
reserves the right to provide compensation and benefits under any
plan or arrangement in amounts, at times and in a manner that
minimizes taxes, interest or penalties as a result of Section 409A.
In addition, in the event any benefits or amounts paid hereunder
are deemed to be subject to Section 409A, including payments
under Section 5 of this Agreement, Executive consents to the
Company adopting such conforming amendments as the Company deems
necessary, in its reasonable discretion, to comply with
Section 409A (including, but not limited to, delaying payment
until six months following termination of employment).
5.
Termination of
Employment.
Executive’s employment hereunder may be terminated prior to
the end of the Term under the following circumstances:
(a)
Termination by Executive for
Other than Good Reason . Executive may terminate his employment
hereunder for any reason or no reason upon 60 days’ prior
written notice to the Company referring to this Section 5(a);
provided, however, that a termination of Executive’s
employment for “Good Reason” (as defined below) shall
not constitute a termination by Executive for other than Good
Reason pursuant to this Section 5(a). In the event the
Executive terminates his employment for other than Good Reason, the
Executive shall be entitled only to the following compensation and
benefits (collectively, the “ Standard Termination
Payments ”):
(i)
Any accrued but unpaid Base Salary
(as determined pursuant to Section 4(a)) for services rendered
to the date of termination paid to Executive in accordance with
regular payroll policies;
(ii)
All vested nonforfeitable amounts
owing or accrued at the date of termination under benefit plans,
programs, and arrangements set forth or referred to in
Section 4 hereof in which Executive theretofore participated
will be paid under the terms and conditions of such plans,
programs, and arrangements (and agreements and documents
thereunder);
(iii)
Except as provided in
Section 6.6, all stock options and other equity awards will be
governed by the terms of the plans and programs under which the
options
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or other awards were granted (unless
accelerated as part of other termination provisions herein);
and
(iv)
Reasonable business expenses and
disbursements incurred by Executive prior to such termination will
be reimbursed in accordance with Section 4(d).
(b)
Termination by Reason of
Death . If
Executive dies during the Term of this Agreement, the Company shall
pay to the last beneficiary designated by the Executive by written
notice to the Company or, failing such designation, to
Executive’s estate, the following amounts:
(i)
The Standard Termination Payments
(as defined in Section 5(a)); and
(ii)
A lump sum payment equal to
Executive’s annual Base Salary, payable within 30 days of
termination.
(c)
Termination By Reason of Total
Disability .
Executive and the Company agree that Executive may not reasonably
be expected to be able to perform his duties and the essential
functions of his office in the event of the Executive’s
“Total Disability.” For purposes of this Agreement,
“Total Disability” shall mean Executive’s
(a) becoming eligible to receive benefits under any long-term
disability insurance program or (b) failure to perform the
duties and responsibilities contemplated under this Agreement for a
period of more than 180 days during any consecutive 12-month period
due to physical or mental incapacity or impairment. In the event
that Executive’s employment is terminated by reason of Total
Disability, the Company shall pay the following amounts, and make
the following other benefits available, to Executive:
(i)
The Standard Termination Payments
(as defined in Section 5(a));
(ii)
An amount equal to the sum of (A)
Executive’s annual Base Salary and (B) Executive’s
“Severance Bonus Amount” (as defined below) payable
over a period of twelve (12) months after termination in accordance
with Section 5(h) of this Agreement, provided such amount shall be
reduced by any disability payments provided to Executive as a
result of any disability plan sponsored by the Company or its
affiliates providing benefits to Executive. For purposes of this
Agreement, “ Severance Bonus Amount ” shall mean
an amount equal to the highest annual Incentive Compensation
paid to Executive in respect of the two most recent fiscal years of
the Company but not more than the Executive’s Target Bonus
for the-then current fiscal year;
(iii)
In lieu of any Incentive
Compensation for the year in which such termination of employment
occurs, payment of an amount equal to (A) the highest annual
Incentive Compensation paid to Executive in respect of the two most
recent fiscal years of the Company but not more than
Executive’s Target Bonus for the year of termination,
multiplied by (B) a fraction the numerator of which is the
number of days Executive was employed in the year of termination
and the denominator of which is the total number of days in the
year of termination, payable as and when such Incentive
Compensation would otherwise have been payable under
Section 4(b); and
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(iv)
If Executive elects to continue
medical coverage under the Company’s group health plan in
accordance with COBRA, the Company shall pay the monthly premiums
for such coverage for a period of eighteen (18) months.
(d)
Termination by the Company for
Cause .
The
Company may terminate Executive’s employment hereunder for
“Cause” upon written notice to Executive referring to
this Section 5(d). For purposes of this Agreement, the term
“Cause” shall mean (i) gross neglect by the
Executive of the Executive’s duties hereunder;
(ii) conviction (including conviction on a nolo contendere
plea) of the Executive of any felony; (iii) conviction
(including conviction on a nolo contendere plea) of the Executive
of any non-felony crime or offense involving the property of the
Company or any of its subsidiaries or affiliates or evidencing
moral turpitude; (iv) willful misconduct by the Executive in
connection with the performance of the Executive’s duties
hereunder; (v) intentional breach by the Executive of any
material provision of this Agreement; (vi) material violation of
material provision of the Company’s Code of Conduct; or (vii)
any other willful or grossly negligent conduct on the part of the
Executive which would make the Executive’s continued
employment by the Company materially prejudicial to the best
interests of the Company; provided, however, that a termination by
the Company under Sections 5(d)(i), 5(d)(v), 5(d)(vi) or 5(d)(vii),
if curable, shall be effective only if, within 21 days following
delivery of a written notice by the Company to Executive that the
Company is terminating Executive’s employment for Cause and
setting forth in reasonable detail the facts and circumstances
allegedly constituting Cause, Executive has failed to cure the
circumstances giving rise to Cause. In the event that
Executive’s employment is terminated by the Company for
Cause, the Executive shall be entitled to receive only the Standard
Termination Payments (as defined in Section 5(a)).
(e)
Termination by the Company
Without Cause or by Executive for Good Reason
. The Company may terminate Executive’s
employment hereunder at any time, without Cause, for any reason or
no reason, and Executive may terminate his employment hereunder for
“Good Reason” (as defined below) if the Company has
failed to cure the event or condition constituting Good Reason
within thirty days after Executive gives written notice to the
Company setting forth in reasonable detail the facts and
circumstances allegedly constituting Good Reason and specifically
referencing this Section 5(e). For purposes of this Agreement,
“Good Reason” shall mean that without Executive’s
prior written consent, any of the following shall have occurred
within ninety days prior to the delivery of such notice:
(i) a material change, adverse to Executive, in
Executive’s positions, titles, offices, or duties as provided
in Section 3, except, in such case, in connection with the
termination of Executive’s employment for Cause, Total
Disability or death; (ii) an assignment of any significant
duties to Executive which are inconsistent with Executive’s
positions or offices held under Section 3; (iii) a
decrease in Base Salary or material decrease in Executive’s
incentive compensation opportunities provided under this Agreement;
and (iv) any other failure by the Company to perform any
material obligation under, or breach by the Company of any material
provision of, this Agreement. In the event that
Executive’s employment is terminated by the Company without
Cause or by Executive for Good Reason, the Company shall pay the
following amounts, and make the following other benefits available,
to Executive:
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(i)
The Standard Termination Payments
(as defined in Section 5(a));
(ii)
An amount equal to the sum of (A)
Executive’s annual Base Salary and (B) Executive’s
Severance Bonus Amount payable over a period of twelve (12) months
after termination in accordance with Section 5(h) of this
Agreement;
(iii)
Except to the extent otherwise
provided at the time of grant under the terms of any equity award
made to Executive, all stock options, deferred stock, restricted
stock and other equity-based awards held by Executive at
termination will become fully vested and non-forfeitable, and, in
all other respects, all such options and other awards shall be
governed by the plans and programs and the agreements and other
documents pursuant to which the awards were granted;
(iv)
In lieu of any Incentive
Compensation for the year in which such termination of employment
occurs, payment of an amount equal to (A) the highest annual
Incentive Compensation paid to Executive in respect of the two most
recent fiscal years of the Company but not more than the
Executive’s Target Bonus for the year of termination,
multiplied by (B) a fraction the numerator of which is the
number of days Executive was employed in the year of termination
and the denominator of which is the total number of days in the
year of termination, payable as and when such Incentive
Compensation would otherwise have been payable under
Section 4(b); and
(v)
If Executive elects to continue
medical coverage under the Company’s group health plan in
accordance with COBRA, the Company shall pay the monthly premiums
for such coverage for a period of eighteen (18) months.
(f)
Change in
Control. In the event
Executive’s employment is terminated by the Company without
Cause or by Executive for Good Reason under Section 5(e) and such
termination occurs upon or within one year immediately following a
“Change in Control” (as defined below), Executive shall
be entitled to the payments described in Section 5(e) above except
that the aggregate amount payable under 5(e)(ii) shall be
multiplied by two (i.e., Base Salary plus Severance Bonus Amount
multiplied by two) and such amount, as well as the amount payable
under 5(e)(iv), shall be paid in a lump sum in accordance with
Section 5(h) of this Agreement. Notwithstanding the foregoing,
payments pursuant to this Section 5(f) shall be reduced by the
amount necessary, if any, to ensure that the aggregate compensation
to be received by the Executive in connection with such
“Change in Control” does not constitute a
“parachute payment,” as such term is defined in 26
U.S.C. § 280G.
For purposes of this Agreement, a
“Change in Control” shall be deemed to have occurred
if: (i) any “person” as defined in Section 3(a)(9) of
the Securities Exchange Act of 1934, as amended (the
“Exchange Act”), and as used in sections 13(d) and
14(d) thereof, including a “group” as defined in
Section 13 (d) of the Exchange Act but excluding SGC and any
subsidiary or affiliate and any employee benefit plan sponsored or
maintained by SGC or any subsidiary or affiliate (including any
trustee of such plan acting as trustee) or any current shareholder
of 20% or more of the outstanding common stock, directly or
indirectly, becomes the “beneficial owner” (as defined
in Rule 13d-3 under the Exchange Act) of securities of
SGC
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representing at least 40% of the
combined voting power of SGC’s then-outstanding securities;
(ii) the stockholders of SGC approve a merger, consolidation,
recapitalization, or reorganization of SGC, or a reverse stock
split of any class of voting securities of SGC, or the consummation
of any such transaction if stockholder approval is not obtained,
other than any such transaction which would result in at least 60%
of the total voting power represented by the voting securities of
SGC or the surviving entity outstanding immediately after such
transaction being beneficially owned by persons who together
beneficially owned at least 80% of the combined voting power of the
voting securities of SGC outstanding immediately prior to such
transaction; provided that, for purposes of this Section 5(f), such
continuity of ownership (and preservation of relative voting power)
shall be deemed to be satisfied if the failure to meet such 60%
threshold is due solely to the acquisition of voting securities by
an employee benefit plan of SGC or such surviving entity or of any
subsidiary of SGC or such surviving entity; (iii) the stockholders
of SGC or the Company, as applicable, approve a plan of complete
liquidation of SGC or the Company, an agreement for the sale or
disposition by SGC or the Company of all or substantially all of
its assets (or any transaction having a similar effect), or SGC
sells all or substantially all of the stock of the Company to any
person or entity other than an affiliate of SGC; or (iv) during any
period of two consecutive years, individuals who at the beginning
of such period constitute the Board, together with any new director
(other than a director designat
